With the market showing undeniable strength in the face of an inevitable Greek default, a short-term trading combination has become an intriguing idea: go long silver, and short financials. The play appears to be well-hedged, and both sides offer significant upside.
The following is from a Dec. 15th post:
“For a speculative silver bull option play, I am buying: ZSL Put, Strike 10, Expiry May 2012, Currently 1.10…may even go lower.”
Hopefully you bought the 1.10, or even a good deal lower. Now at $1.35, I am pairing off half.
Note, the paper market is extremely volatile and the swing game is largely a difficult function of anticipating manipulation.
For a speculative silver bull option play, I am buying: ZSL Put, Strike 10, Expiry May 2012, Currently 1.10…may even go lower.
The situation in silver is a little more dicey. The CoT report wasn’t quite as unnerving but the charts need to be watched. Fortunately, silver has now bounced off of its primary trendline twice in the last three days. This is a very helpful development. However, we must watch that line very closely. You can see it on all three of these charts. For today, that support is near $33.80. It is critical that silver stay above that level. Conversely, IF silver can break out through 35 and 35.60, our next target is 37 and then the area between 39 and 41.
ZSL discussion forums were full of angry investors, who were seeing their positions in the red on the day when silver was also down. Many of them were even calling for SEC investigation of the fund.
In order to make sense of what happened, one has to take into account that ZSL is rebalanced at 7am (ET) when its NAV is calculated based on the London Silver Fix. When it begins trading at 9:30 am on the NYSE, the proper baseline is not the previous day’s closing price, but the 7 am NAV. This means that the fund has taken short positions on silver (forward and futures contracts) based on the London Silver Fix price, and it will be losing if the silver price goes above the London Fix after 9:30 and gaining if it is below.
Their explicit goal of targeting a daily benchmark return correlation leaves the secondary consideration less important: Maximizing long term returns. Thus, the ETFs tend to underperform their benchmark over longer durations, and this adds up.
Solid case here for night gap-trading the U.S. silver market. As always, thank you Derek!
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Just FYI, more info on the AGQ & ZSL leveraged ETFs.
Most leveraged and inverse ETFs “reset” daily, meaning that they are designed to achieve their stated objectives on a daily basis. Their performance over longer periods of time — over weeks or months or years — can differ significantly from the performance (or inverse of the performance) of their underlying index or benchmark during the same period of time. This effect can be magnified in volatile markets. As the examples below demonstrate, an ETF that is set up to deliver twice the performance of a benchmark from the close of trading on Day 1 to the close of trading on Day 2 will not necessarily achieve that goal over weeks, months, or years.
Chris is out of AGQ. He discusses the pitfalls of how the mathematics work with the double ETFs (also ZSL). It has been suggested by others as well that these are for very short term minded traders/day traders
Check out the rise in silver Backwardation during the height of the recent CME smackdown.
Pointed out by BrotherJohnF, this comment by Urban Redneck on Zero Hedge is essential reading towards understanding how crucial the silver market is regarding the entire financial system.
Major commodity producers outside of the PM markets currently maintain outsized commodity trading departments in relation to their hedging needs for production because they need to maintain the size and strength in the paper markets to shake the price free from the paper commodity banks when their shenanigans get out of hand, or trade their way to a fiat profit they are unable to free the fiat commodity price.
In a fiat world, where there is a paper product to meet every conceivable financial desire, the fact that large commodity producers (agribusiness, mining, petroleum) would engage in off-exchange forward physical commodity swaps, which are inherently less cost efficient than their fiat counterparts, should be a warning to smaller market participants as to how rigged and expensive the paper commodity game actually is even at the top.
Large market participants have an inherent advantage over smaller players in any financial market exchange. When the Comex is finally banished to the eighth circle of hell, new exchange(s) willemerge to replace it. Hopefully they will achieve more honest price discovery and will better represent the interests of producers and small market participants and less represent the interests of politicians and bankers. A movement away from dollar hegemony will be painful to those who measure their wealth in nominal dollars, but it will strip some of the power politicians and central bankers to destroy the wealth of their nations through policies of monetary debasement.
The actions in the tiny silver market over the last week demonstrate the determination, power and collusion of politicians and bankers in preventing honest price discovery. They lay bare the lies of the BLS propaganda as to inflation and the diminishing purchasing power of the masses through unsupported fiat currency printed at the will of the central bankers. The actions in the miniscule precious metals markets struck at the fiat heart and reverberated through the much larger oil, food, and currency markets.
The immediate CME and bullion bank concern (within the confines of the silver futures market itself) is not directly related to either covering shorts or the paper price, especially since the short positions were opened with monopoly money to begin with.
The primary concern is controlling the flow of the underlying physical silver, and buying time to keep the Crimex scam alive. The longer the Crimex scam remains viable, the more money they make for themselves and the more wealth destruction by central bankers they can hide. By shaking the weak long positions out, they now control more of total open interest, and did so at a lower cost and higher profit than possible in an “fair” market, as there are less “outsiders” capable of removing whatever pot of physical silver remains in their vaults through the exercise of long contracts.
Since they now control more of the total supply of contracts, both long & short, they have the option, which they will exercise at their leisure, of either selling them back to the sheeple at a profit, or closing their shorts, depending on their current view of the greed vs. fear conundrum.
Another way of explaining the ongoing precious metals market manipulation is the analogy that the Crimex is nothing more than a crooked poker parlor. The CME packs some of the seats at each table with shills (the bullion banks) who didn’t actually have to pay for their chips, so there isn’t money in the cage to back all the chips (contracts) on the floor. Marks are drawn into casino and pay up (current margin requirement) and receive casino credit for the balance of chips desired at the cage before taking a seat at the table. The con succeeds (and the Crimex dealer, pit boss and the shills book profits) when the mark loses his chips at the table, not when the excess chips are picked up from the table and returned to the cage (so open interest doesn’t need to decline). As long as the number of marks walking back to the cage to cash out the chips is controlled then the con can continue. Sometimes the shills have to collude with house to prevent a run on bank, so a combination of margin hikes (revocation of casino credit) and volatility (big bluffs) is employed, and the clueless mark is often sent scurrying out of the casino with a much lighter wallet.
This is a con worthy of Joe Kennedy and his old business partners before he became head of the SEC and “outlawed” some of the very practices which he formerly excelled in. Nixon abandoned the dollar to gold convertibility in August 1971 by executive order. However, Congress still had to continually devalue the US dollar against gold since the gold price was fixed and Congress’s spending habits weren’t. The dollar was devalued by raising the gold price from $35 to $38 on May 8, 1972 by PL 92-268. The dollar was again devalued by raising the gold price from $38 to $42.22 on October 18, 1973 by PL 93-110. Since the fixed gold price problem was getting to be like the debt ceiling problem is today a decision to float the gold price was made. The Crimex gold contract was launched on December 31, 1974. Coincidentally on December 31, 1974 the prohibition of private ownership and trading of gold in the US was revoked by PL 93-373. Since the original purpose of the Crimex gold contract was to control the devaluation of the dollar-the US Government has been in bed with Crimex and its bullion bank shills since its very inception, just like the local police and politicians on the take who granted the license and continue to allow the crooked poker hall to remain open.
In the past several decades, politicians and bankers have created a worldwide FIAT CATHEDRAL to honor Satan (conveniently denominated in USD and primarily benefiting US politicians spending desires). The bargain was struck in the hope of receiving FINANCIAL STABILTY and INCREASED SPENDING POWER at no cost to politicians or bankers, but rather at the cost of the wealth and souls of the masses commanded and controlled by the very politicians and bankers striking the deal with the devil. The gold market forms the vault of the cathedral’s crossing, and the silver market forms the keystone of the central vault. The equity and debt markets form the transept, the broader commodity futures market forms the choir, and the remaining derivatives market forms the huge nave (primarily consisting of the interest and F/X derivative markets).
The central banks maintain gold reserves to back the bullion banks in their battle against anyone trying to bring down the gold market. The central banks do not maintain silver reserves and questions about depth of bullion bank reserves in the Comex, SLV, and LBMA vaults are leading to serious arch balding. The collapse of the keystone can bring down the crossing vault and the entire cathedral roof, but how else can the masses save their souls from devil who continues to extract his pounds of flesh through inflation masked as diminishing purchasing power.
Silver technical info covered from approx 10:00 to 15:30
Silver is a great trading vehicle right now, massive volume and volatility.
Phil explains options expiry ‘pin risk’.
SSB: Nice explanation from YouTube Rawdoglet on Options (different from shorts).
Karl is a sharp guy with a great attitude. He sees the possibility of some near term correction but is rock solid on his core position and silver going higher – i.e. nothing has fundamentally changed with the politicians/Fed crazies.